Selling South Korea

For the first time in modern history, South Korea is laying claim to lead the club of rich nations. South Korea became the first member of the Organization for Economic Cooperation and Development—the group of 30 wealthy nations—to emerge from the global recession when it recorded 0.4 percent growth in the third quarter of last year. This year the OECD expects South Korea's GDP to expand by 4.4 percent, the highest growth rate of any of its members.

Now President Lee Myung-bak wants to turn the end of the economic crisis into an opportunity. He knows the crash has accelerated the decline of American might, as well as the rise of China and other emerging powers, and he aims to exploit the gap between them. His goal is to transform South Korea from a successful but self-involved economic power into a respected global soft power with the clout to mediate between rich and poor nations on global issues such as climate change and financial regulation. In particular, Lee is pushing to revive momentum on a global free-trade deal—stalled in large part due to hostility from poor nations—while defending the poor by pushing for more international supervision of the global financial system. At the same time, he is trying to establish South Korea as a leader in the fight against global warming by agreeing that the country will cut emissions by 30 percent by 2020—one of the most aggressive targets in the world—even though it is not obligated to do so because it is still considered a developing nation under the Kyoto Protocol. To many in South Korea, the selection of Seoul as the site of the November 2010 summit of the G20—the group of 20 leading economic powers—is an acknowledgment of how well it has managed the current economic and environmental crises. "The old order is being dismantled and replaced by the new order," Lee said from the Blue House in a televised New Year's speech. "We have to make our vision the world's vision."

Lee is one of only two former CEOs to lead a major trading power—Italy's Silvio Berlusconi is the other—and he runs South Korea like the just-do-it boss he was at Hyundai, where staff called him "the Bulldozer." At Hyundai he led a company known for fearless forays into foreign markets, whether it was building huge bridges in Malaysia or selling cars with stunning success in the crowded U.S. market. Now he is trying to make South Korean culture—still on the defensive after a long history of colonial occupations—as cosmopolitan as Hyundai's culture. He's pushing for greater use of English and generally trying to open up South Korea to the world. In his first big political job, as mayor of Seoul, he created a huge ruckus when he ripped up the downtown to expose a boarded-up stream—but it is now a major draw for commerce and tourism. Lee's grand domestic ambition as president is a multibillion-dollar plan to refurbish South Korea's four major rivers despite protests from environmentalists and opposition members. Lee believes the project will boost local economies by creating jobs and promoting tourism and commerce. Lee's popularity ratings, after an early plummet driven by a decision to allow U.S. imports of beef, are now at more than 50 percent as voters warm to his vision of newly developed South Korea as a model nation to be emulated by many developing countries.

South Korea's successful management of the economic crisis surely helps. Early on, the country was battered like the rest of the world. The South Korean won dropped 30 percent in the first three months of the crisis, the stock market dropped by half, and foreign investors left in droves. But unlike most other rich nations, South Korea had recent experience with a major financial meltdown. Many of its current leaders are veterans of the Asian crisis that crippled the country's economy in 1998, and they knew how to manage a free fall. Lee's team immediately moved to save threatened banks and companies by setting up $200 billion in various funds to guarantee payment of their debts and for other forms of emergency aid. They struck currency-swap deals with major economies such as the U.S. to secure dwindling reserves of foreign currency and front-loaded public spending so that 65 percent of the country's $250 billion budget was spent during the first half of 2009, ensuring that the money got into the economy rapidly—but without adding new debts. A government focus on protecting jobs kept consumer sentiment relatively high, and the Bank of Korea cut interest rates by 3.25 percentage points to 2 percent, a historic low.

All the while, Lee worked relentlessly to quiet calls for protectionism at home and abroad, at a time when many other leaders, including Barack Obama and Hu Jintao, were beginning to succumb. Lee's administration is pushing for a slew of free-trade agreements with the U.S., the European Union, Peru, Colombia, Canada, Australia, and even China and Japan, if possible, says Abraham Kim, a Korea analyst at the political-risk consultancy Eurasia Group. Lee also lobbied hard at the Pittsburgh meeting of the G20 last year to have Seoul selected as the site of the next summit this autumn, an event he hopes to organize as a coming-out party. "He is trying to use the crisis to enhance the reputation of South Korea and help it to be widely recognized as a developed-world state," says Kim. "This is partly a nationalism thing, but more importantly, they are trying to get out from under Japan's and China's shadow. South Korea needs to find its niche for its long-term competitive survival."

South Korea was further protected from the crisis because its economy was built on pillars other than the collapsing financial-services industry. Decades of government efforts to nurture globally competitive conglomerates through massive infusion of capital had helped build export machines such as Samsung, Hyundai, and LG. As the crisis unfolded, the weakening currency allowed these companies to expand global market share, especially against key Japanese and other rich-world competitors. As a result, South Korea registered a record trade surplus of $42 billion last year, surpassing that of Japan for the first time. South Korean companies and banks were also ready to compete because the crisis of the 1990s had forced them to improve corporate governance, get their finances in order, and invest heavily in new technology. "We just had to dust off the old measures we used a decade ago and use them again," says Vice Finance Minister Hur Kyung-wook.

In short, the South Korean model is a more mature cousin of China's—a hybrid economy, part free market, part state-controlled—but with more freedom for the market and for political dissent. Now Lee is positioning South Korea within Asia as a dynamic alternative to both China's mighty command economy and Japan's no-growth economy. In Southeast Asia, South Korea has long been admired for completing an economic miracle in just one generation, moving its 48 million people out of poverty and entering the ranks of fully industrialized nations, with average per capita income that surpassed $20,000 in 2007. And, unlike China, South Korea has achieved economic and political growth at the same time, with an increasingly well-established multiparty democracy that respects free speech and election results. South Korea, says U.S. Ambassador Kathleen Stephens, is "the best example in the post–World War II era of a country that has overcome enormous obstacles to achieve this kind of success."

Many Southeast Asian nations, alarmed by the harsh sides of the China model, look to South Korea as an alternative. Vietnam is sending civil servants there, studying how in the 1970s and '80s Seoul used massive government support, such as cheap loans, to develop strategic industries such as steel and petrochemicals as the backbone of its export economy. As part of Vietnam's effort to develop capital markets, it also now runs a stock exchange in Hanoi, built with the help of the Korea Stock Exchange. Officials from Vietnam, Cambodia, Indonesia, and Uzbekistan regularly visit South Korea to join training programs that teach economic and business management. "Developing countries are eager to learn South Korea's economic model because of its relevance to them," says Euh Yoon-dae, a Korea University economist currently heading a presidential committee to promote the national brand. "Our open economic system is more appealing to them than, say, that of China."

Surrounded by bigger powers—China, Russia, and Japan—South Korea needs to carve out a global role for itself to "ensure its prosperity and security," says David Straub, a Korea expert at Stanford University. So, in his first year in office, Lee made a point of systematically reaching out to foreign leaders in the United States and other major powers. The following year he headed to Europe. This year, Straub says, Lee is expected to target Africa. At the same time, he is upping South Korea's profile abroad, posting 3,000 volunteers from its version of the Peace Corps to Asia and Africa, where they will focus on public health and childhood education, with plans to increase that number to 20,000 by 2013. Last year South Korea officially became the first former recipient of international aid to graduate to the donor ranks, sending $1 billion to dozens of poor countries, and it plans to triple that sum within five years. Likewise, the number of troops it commits to U.N. peacekeeping operations will jump from 400 in 2009 to 1,000 this year and will work in roughly 10 nations, including Lebanon and Pakistan.

Lee has big plans for Brand South Korea, too. At Hyundai, he turned what had been a small contractor into a global manufacturing powerhouse. He speaks English, unlike his predecessor as president, and he is comfortable playing national pitchman. Just after Christmas, following six rounds of telephone calls with United Arab Emirates President Khalifa bin Zayed Al Nahyan and a last-minute visit to the country, Lee helped South Korea beat out a French and a joint U.S.-Japan consortium to win its biggest foreign contract ever: a $40 billion nuclear-power-plant contract in the U.A.E. While Hyundai and Samsung have overcome the perception abroad that "made in South Korea" still means poorly made, many other South Korean brands have not. According to a survey by Simon Anholt, a British expert on national branding, the country ranks 33rd in global branding power, although its economic size ranks 13th in the world. What's more, more than half of U.S. college students believe Hyundai and Samsung are Japanese brands. "Our job is to narrow the perception gap between the national and corporate brands," says Euh, the head of the branding committee.

Lee plans to build on that success at the G20 summit. He has already distinguished himself from his predecessors by embracing foreign investment and free trade, rather than focusing on rigid ideology, and he intends to use the meeting to showcase the rewards of that strategy. Lee's hope is that he can send a message to smaller, poorer countries, particularly in Asia, that South Korea's less insular, more global approach can be a model they can follow, too. Of course, as his opponents are quick to point out, the fate of his country will not change because the leaders of 20 advanced nations get together for a few days. But Lee says it is part of a larger effort to move his country "away from the periphery of Asia," as he put it recently, "and into the center of the world."

I asked some of those girls what they found to be so cool about purikura. They excitedly told me that it was the electronic pen, which allowed them to scribble in messages, affix icons and draw over their faces to create an image totally different from their own.

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ETIENNE'S COOL JAPAN: 'Purikura' adds exciting dimension to photos

BY ETIENNE BARRAL, SPECIAL TO THE ASAHI SHIMBUN

2010/02/27

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Users can add their own decorations and creative flourishes to "purikura" photo stickers. (ETIENNE BARRAL)

On her 12th birthday, my daughter invited some French friends over for a party. Of all the fun and games they enjoyed that day, the one thing that everybody seemed to get the biggest kick out of was posing for purikura, or photo stickers.

Why purikura, which was no longer a novelty?

While we have something like purikura in France too, the technology is primitive when compared with Japan.

The selection of background patterns is limited. What's more, the pictures do not come with the adhesive surfaces, rendering them mere extensions of the photo booth snapshot.

For many French girls who came to Japan with their parents when they were posted here, the encounter with purikura was a revolutionary one. They would often meet up at the nearby game arcade, jump into a booth together, and give their best poses.

They carefully evaluated each machine to find the one that offered the widest variety of patterns. While most of this was nothing new for my daughter, who was born and raised in Japan, just being with her friends was enough to have a good time.

I asked some of those girls what they found to be so cool about purikura. They excitedly told me that it was the electronic pen, which allowed them to scribble in messages, affix icons and draw over their faces to create an image totally different from their own.

Many kids noted wistfully that they would miss purikura upon leaving Japan for France. So my suggestion to the manufacturers is, how about introducing some of this cutting-edge technology to France?

* * *

Editor's note: This column, originally published in the vernacular Asahi Shimbun, is written by a French journalist who has lived in Japan for more than 20 years.

MAD dogs and Englishmen, so the song has it, go out in the midday sun. And the business practices of England’s lineal descendant, America, will have you in the office from nine in the morning to five in the evening, if not longer. Much of the world, though, prefers to take a siesta. And research presented to the AAAS meeting in San Diego suggests it may be right to do so. It has already been established that those who siesta are less likely to die of heart disease. Now, Matthew Walker and his colleagues at the University of California, Berkeley, have found that they probably have better memory, too. A post-prandial snooze, Dr Walker has discovered, sets the brain up for learning.

The role of sleep in consolidating memories that have already been created has been understood for some time. Dr Walker has been trying to extend this understanding by looking at sleep’s role in preparing the brain for the formation of memories in the first place. He was particularly interested in a type of memory called episodic memory, which relates to specific events, places and times. This contrasts with procedural memory, of the skills required to perform some sort of mechanical task, such as driving. The theory he and his team wanted to test was that the ability to form new episodic memories deteriorates with accrued wakefulness, and that sleep thus restores the brain’s capacity for efficient learning.

They asked a group of 39 people to take part in two learning sessions, one at noon and one at 6pm. On each occasion the participants tried to memorise and recall 100 combinations of pictures and names. After the first session they were assigned randomly to either a control group, which remained awake, or a nap group, which had 100 minutes of monitored sleep.

Those who remained awake throughout the day became worse at learning. Those who napped, by contrast, actually improved their capacity to learn, doing better in the evening than they had at noon. These findings suggest that sleep is clearing the brain’s short-term memory and making way for new information.

It is already well known that fact-based memories are stored temporarily in an area called the hippocampus, a structure in the centre of the brain. But they do not stay there long. Instead, they are sent to the prefrontal cortex for longer-term storage. Electroencephalograms, which measure electrical activity in the brain, have shown that this memory-refreshing capacity is related to a specific type of sleep called Stage 2 non-REM sleep.

The ideal nap, then, follows a cycle of between 90 and 100 minutes. The first 30 minutes is a light sleep that helps improve motor performance. Then comes 30 minutes of stage 2 sleep, which refreshes the hippocampus. After this, between 60 and 90 minutes into the nap, comes rapid-eye-movement, or REM, sleep, during which dreaming happens. This, research suggests, is the time when the brain makes connections between the new memories that have just been “downloaded” from the hippocampus and those that already exist—thus making new experiences relevant in a wider context.

The benefits to memory of a nap, says Dr Walker, are so great that they can equal an entire night’s sleep. He warns, however, that napping must not be done too late in the day or it will interfere with night-time sleep. Moreover, not everyone awakens refreshed from a siesta.

The grogginess that results from an unrefreshing siesta is termed “sleep inertia”. This happens when the brain is woken from a deep sleep with its cells still firing at a slow rhythm and its temperature and blood flow decreased. Sara Mednick, from the University of California, San Diego, suggests that non-habitual nappers suffer from this more often than those who siesta regularly. It may be that those who have a tendency to wake up groggy are choosing not to siesta in the first place. Perhaps, though, as in so many things, it is practice that makes perfect.

February 26, 2010

Tsutomu Yamaguchi, a double nuclear survivor, died on January 4th, aged 93

Jeremy SuttonHibbert

WHEN he had stopped crying, Tsutomu Yamaguchi would tell you why he called his book of poems “The Human Raft”. It had to do with the day he forgot to take his personal name-stamp to work, and had to get off the bus. Much was on his mind that morning. He had to pack his bags to leave Hiroshima after a three-month assignment as an engineer in the Mitsubishi shipyard; there were goodbyes to say at the office, then a 200-mile train journey back to Nagasaki to his wife Hisako and Katsutoshi, his baby son. He was slightly stressed when he got to his stop, still with half-an-hour’s walk ahead of him on a track that led through featureless potato fields. But it was a beautiful August day; the sky was clear, his spirits high. And then—readers will feel a tremor, but he felt none—he noticed an aircraft circling, and two parachutes dropping down.

The next thing he knew was a blaze of white magnesium light, and a huge ball of fire. He dived to the ground. The fireball, roaring upwards, sucked him up again and threw him, blinded, face-down into the mud of the potato field. He was two miles from the epicentre of the blast, in a rain of flaming scraps of paper and clothes. His upper body and half his face were badly burned, his hair gone and his eardrums ruptured. In this state, he made his way back to the devastated city to try to do what he had meant to do that day: catch the train. The river bridges were down. But one river was full of carbonised naked bodies of men, women, children, floating face-down “like blocks of wood”, and on these—part treading, part paddling—he got to the other side. His human raft.

At this point in his story he would weep uncontrollably. It was by no means the end of it. When he reached Nagasaki, barely pausing to get his burns dressed, he reported for work. His boss was sceptical: how could a single bomb have destroyed Hiroshima? Then the same white magnesium light blazed in the window, and Mr Yamaguchi was tossed to the ground again. A reinforced-steel stairwell saved him. His bandages were blown off, and he spent the next weeks curled round his raw wounds in a shelter, close to death. His house was destroyed, his wife and son saved for no reason he could see. But when schoolchildren later asked him, in awed respect, “What was the most terrible thing?”, his answer was not the dangling tongues and eyeballs, not the skin that hung off the bodies of the living “like giant gloves”—but the bridge of bodies on which he had crossed the river.

He talked about all this to Charles Pellegrino, an American writer, and Richard Lloyd Parry of the London Times. He told them that he hated the atom bomb because of “what it does to the dignity of human beings”. Walking into Hiroshima, he noticed that the bewildered crowds on the streets were mostly naked, limping children. They made no sound; indeed, no one made a sound. They were reduced—like him, as he was flung into the furrows of the potato field—to the level of mute sticks or leaves, tossed in the wind and burned, or used as floats.

Some argued that he was lucky. A deaf left ear and weak legs were the only after-effects until, late on, stomach cancer appeared. He worked as a translator, then a teacher, and eventually returned to Mitsubishi. But, as he wrote in 1969, he was not so sanguine inside.

Thinking of myself as a phoenix,

I cling on until now.

But how painful they have been,

those twenty-four years past.

His emotions mostly emerged in these tanka, or 31-syllable poems. He wrote hundreds, each one an ordeal. When he composed them, he would dream of the dead lying on the ground. One by one, they would get up and walk past him.

Carbonised bodies face-down in the nuclear wasteland

all the Buddhas died,

and never heard what killed them.

He published these poems himself in 2002, and they might have been his only testimony. But in 2005 his son Katsutoshi died of cancer at 59, killed by the radiation he had received as a baby. Mr Yamaguchi began to feel that fate had spared him to speak out against the horrors of nuclear weapons: in schools, in a documentary, in a letter to Barack Obama and even, at 90, on his first trip abroad, in front of a committee of the United Nations in New York.

If there exists a GOD who protects

nuclear-free eternal peace

the blue earth won't perish

At his insistence, his status was recognised by the Japanese government: he became officially (though there had been more than 100 others) the only nijyuu hibakusha, or twice-victim of the atom bomb.

He began to be comforted by three things. One was a set of drawings of the 88 Buddhas of the Shikoku pilgrimage, whose outlines—robes, haloes, calm hands—he devoutly painted in. The carbonised, face-down Buddhas of his tanka found peace again. The second comfort was in “simple acts of kindness”. And the third was an image of his life as a baton, passed on every time anyone heard or read his testimony. All these batons might form, together, another human raft.

February 12, 2010

HOW far should the Government extend its long arm into the private sector?

The Economic Strategies Committee last week proposed that the Government, aided by private sector fund managers, invest up to $1.5 billion in Singapore-based enterprises to help them grow and even take a stake in them.

The idea raised few eyebrows here but would have caused renowned political economist Huang Yasheng to do a double-take.

To the Beijing-born Massachusetts Institute of Technology (MIT) professor, who was in town recently to address the Civil Service College, state-linked enterprise models are a sure-fire way to stifle the economy in the long run.

Known for his critical view of China's bias towards state-linked enterprises at the expense of its home-grown businesses, he expressed the same scepticism about how far state intervention can help private enterprise here.

Singapore should 'rethink' the 'Temasek model', he says, referring to the state investment company Temasek Holdings, which has major stakes in large local corporations such as telecommunications player SingTel and developer CapitaLand.

'The private sector is the best way to grow the economy. It has the most productive, most innovative and entrepreneurial culture. The state-owned enterprise system doesn't give you that.'

He acknowledges that Singapore has 'the most streamlined state management model' worldwide among the countries which adopt this method, but it has milked this system for all it is worth.

'You are already hitting the wall,' he warns. Retaining this strategy could mean sacrificing future growth that is possible only through a bigger, more dynamic private sector.

When governments get involved in venture financing, they risk getting tangled in a whole host of issues. Few taxpayers, he reckons, can stomach the inherent risks of funding technology start-ups.

'Nine out of 10 investment projects fail. Does the government have such a high tolerance for risk? It's taxpayers' money, right? I don't think, politically, it's legitimate for the government to keep investing in failing individuals and failing projects. How do you defend these decisions?'

Those who fund these start-ups need to understand that risk-taking is part and parcel of the whole process.

'But does the average Singaporean understand that?'

Even if a project does succeed, other thorny issues crop up.

'The entrepreneur gets a disproportionate share of the benefits. Why should I, as a taxpayer, fund these projects? What do I get? There's a basic illogic to the government being involved in venture financing, at a political level and operational level.'

In most other countries, government funding typically goes into basic research without direct commercial applications.

'Maybe a better way is for the government to fund more basic research and then allow universities, private equity firms, venture capital firms and rich individuals to take care of the rest.'

That is because even when the state sector is well managed, it is not as innovative as the private sector, he says.

'From a technological development point of view, you need a bigger private sector to compete, to come up with new products, processes and technologies, to better compete with India and China.'

The case for private entrepreneurship is strong even when applied to these two Asian giants. In a 2006 Financial Times article, he compared the two economies, concluding that India was achieving a high level of economic growth with just a fraction of what China was receiving in foreign direct investment.

The difference boiled down to the level of support for local entrepreneurs.

'An economic litmus test is not whether a country can attract a lot of foreign direct investment, but whether it has a business environment that nurtures entrepreneurship, supports healthy competition and is relatively free of heavy-handed political intervention. In this regard, India has done a better job than China,' he wrote.

The trouble with civil servants leading the charge, he says, is that creative thinking is often in short supply.

'Civil service culture is about discipline. It's about execution. It's about efficiency. Entrepreneurial culture is about challenging the authorities, questioning the existing ways of doing businesses, moving away from the routines and norms. It's about the unconventional, rebellious and diverse. These values are almost polar opposites.'

He stops himself for a moment. 'I want to be very clear, Singapore has one of the best civil services in the whole world, and that's a very precious asset. The issue is, whether you want the civil service to play such a big role (in enterprise) or not.'

State-linked enterprises, he acknowledges, served Singapore very well before the rise of cheap labour in China and India, when growing the economy required merely ramping up production through higher efficiency. But today, the challenge is constant innovation.

'You can increase scale economy with government funding. But when it comes to new products, processes and technologies, it's very different. It's not just about money, it's culture.'

But growing up in the big shadow of state intervention has dwarfed the entrepreneurial culture here, he says. The 'orderly' environment here dulls the incentive to think out of the box. 'Everything is very well organised. Entrepreneurship typically happens in a more chaotic environment,' he observes.

Even Singapore's 'top-down' education system gets in the way.

'While producing excellent maths scores, it is not producing diversity in ideas and unconventional ways of solving problems,' he notes.

The new game is not about high averages, but outliers. Nor is it about size, but nimbleness.

He scoffs at the widely held view here that local firms are too small to compete outside Singapore without help from the government or government-linked firms.

'This idea that size gives you advantage is an extraordinarily strange view. Was Microsoft a big company in 1975? Was Google a big company in 1998?

'The key thing is whether or not you can grow, and how you grow. If government support is behind the growth of a company, that means the company has not survived the competition test. It may fail in a different environment.

Worse still, 'if the government support is strong, it dilutes the incentive to innovate'.

A small company, he says, can be 'extremely competitive' by occupying a strategic niche.

'Academic research shows overwhelmingly it is the small companies that create new technologies and new products. Big companies are innovative only when they acquire small companies.'

Hence, the critical question for Singapore is whether its big firms have enough small companies to acquire.

To help smaller players flourish, he believes local entrepreneurs should have easier access to private funds. The Central Provident Fund system, he points out, is worth a relook. While it builds up retirement nest eggs by enforcing savings that can run up to about 40 per cent of an employee's total wage, it also channels away a sizeable sum from the hands of potential entrepreneurs to government investments.

Putting some of these funds back in the hands of more nimble local entrepreneurs could be Singapore's best bet to stay ahead in this fast moving global economy. Failing to exploit the potential of its private sector could mean the country, once labelled an 'Asian Tiger' for its sparkling growth rates, might go down in history as an economic has-been, he says.

'I think Singapore has done a remarkable job in the last 50 years. The logic of its system is very powerful. But the issue now is that we have a very different environment.

'And the ultimate success of a system depends on its ability to adapt to new situations,' he adds.

Treasury Secretary Henry Fowler, shrewd, effective, a superb negotiator, but somewhat shy of Lyndon Johnson, would occasionally feel in need of a presidential laying on of hands even when he had no serious presidential business. After one such occasion - it had ended with Fowler, sitting on the edge of the Oval Office loveseat, reading in monotone from his own memo on the floor in front of him, while the president was plucking yellow news tickers from the ticker machine at the opposite end of the Oval - LBJ turned on me, angrily: "What on earth did you bring him in here for, wasting my time . . . " and so forth, but then stopped himself mid-sentence. "No, I'm wrong. Make me see him when he asks even if he has no real business! While you staff fellows are safe in the White House, these cabinet fellows are out there every day being shot at, on the Hill, in the papers, on TV. They are my field generals. Never forget that. They'll be useless to me if they don't feel connected to me. Always treat them with dignity."

Francis M. Bator,

Wellesley, MA, US

Deputy National Security Adviser to President Lyndon B. Johnson

Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

Insight

Feb 6, 2010

ESC RECOMMENDATIONS ON PRODUCTIVITY

Paradigm shift or pendulum swing?

Productivity is back in vogue and older Singaporeans wonder why it was allowed to slide in the first place. Wasn't productivity the mantra in the 1980s? So what happened? What's different this time around? How will the Economic Strategies Committee proposals affect the worker and the businessman?

By Zakir Hussain

Slower productivity growth in the late 1970s saw the Government embark on a Productivity Campaign in the early 1980s. The National Productivity Board was formed.

As the economy moved from labour-driven growth to investment-driven growth, the productivity movement stepped up efforts to widen awareness of raising efficiency.

In the mid-1990s, the productivity board became the Productivity and Standards Board (PSB).

In 2002, the PSB was renamed Spring Singapore - standards, productivity and innovation for growth - to reflect the focus on innovation-driven development.

Mr Lee Kuan Yew giving a speech at the inauguration of Productivity Month in 1982. A national campaign was started to 'work better and smarter'. -- ST FILE PHOTO

SINGAPORE'S labour force will grow by only 1 per cent to 2 per cent a year in the next 10 years, and further unlimited inflow of foreign workers is out of the question.

As a result, the country has no other option but to ensure that future economic growth is based on high productivity improvements each year.

This sounds like a recommendation from the Economic Strategies Committee (ESC) report this week. It is not.

Believe it or not, it comes from page 123 of the Report of the Economic Committee, published in 1986, which identified new directions for Singapore's economy.

Productivity - the ability to create valuable goods and services through the use of the country's human, capital and natural resources - has long been a concern for the Government.

It is not hard to see why. Over the decades, ministers have stressed that raising productivity is key to sustaining the country's economic growth and consequently the standard of living and prosperity of its people.

Gains in efficiency have translated into better wages and jobs for many.

But the changing nature of economic challenges as Singapore industrialised and entered the league of developed nations has meant that this message needs to be renewed - and adjusted - over time.

Productivity in the past

IN THE first 15 years after Independence - between 1966 and 1980 - the economy grew some 10 per cent a year on average.

New businesses and investments poured in, creating jobs for people.

But by the end of the 1970s, the nation's productivity was growing much slower than that of industrialising competitors Hong Kong, Taiwan and South Korea.

It had to buck up, or be left behind.

So when the Government drew up a 10-year plan for the following decade, improving productivity became a key plank if the economy was to keep growing at 8 per cent to 10 per cent a year.

To induce employers to optimise labour use, mechanise operations and shift to higher value-added economic activities, the National Wages Council recommended a higher than usual wage increase of nearly 20 per cent a year from 1979 to 1981.

Then Prime Minister Lee Kuan Yew said in 1979 he was concerned that workers here were not as proud of or as skilled in their jobs compared to the Japanese or the Germans.

In 1981, he met key Japanese employers in Singapore to discuss practices, work attitudes and productivity in Japan and what could be applied here.

A committee on productivity was soon formed, and it recommended that a productivity movement be launched to tackle the issue.

Thus began the national campaign to work better and smarter.

A National Productivity Council and a National Productivity Board were formed. The drive worked.

The productivity of Singapore's labour force averaged 4.7 per cent a year from 1981 to 1988, contributing 77 per cent to gross domestic product (GDP) growth.

This was greatly aided by new technology, which saw output grow rapidly. The workforce grew by just 1.4 per cent a year.

But the high-wage policy was partly to blame when the economy went into recession in 1985, prompting the formation of the Economic Committee.

The committee noted that productivity growth in other developed economies, Japan aside, had stagnated.

There was therefore a need to keep raising awareness of productivity as well as take a broader approach to it - by looking at improving training, management skills, and work attitudes.

In 1990, the productivity board - the forerunner of today's Spring Singapore - issued a report on the productivity challenge over the next 10 years.

It identified five broad areas where improvements would help lift efficiency: work attitudes, skills upgrading, labour-management cooperation, progressive management practices, and effective use of manpower.

The labour movement helped to raise awareness of these issues, and productivity gains were chalked up - albeit at a much slower 3 per cent a year in the 1990s.

These gains were, however, questioned by several pundits including American Nobel Prize-winning economist Paul Krugman.

In a 1994 article in Foreign Affairs magazine, he argued that Asia's economic miracle was a 'myth', and said that Singapore's stunning growth of 8.5 per cent a year over 25 years was unsustainable: It was the result of increased investment and labour, not added efficiency.

He was criticised for overstating his case, but his point on total factor productivity - intangible productivity gains not accounted for by increased labour or investment - was noted.

Singapore Management University economist Hoon Hian Teck and Nanyang Technological University (NTU) economist Ho Kong Weng, however, found that from 1970 to 2004, total factor productivity growth contributed to over 60 per cent of the growth in the standard of living.

'Singapore's growth in standard of living benefited from the adoption of technology from abroad through our liberal policy towards multinational corporations that brought with them managerial expertise, technologies, and markets,' Professor Hoon tells Insight.

Grow, grow, grow

THE rapid growth of Asian economies over the past decade saw Singapore going for a policy of maximising growth to ride on this rising tide.

Labour MP Josephine Teo feels the difficult start to the decade - the 1998 Asian financial crisis, the 2001 recession and the 2003 Sars crisis which set back the economy - resulted in a great sense of urgency to make up for lost time, and to grab every growth opportunity.

'It was the right thing to do after the series of crises and in hindsight, we might have pulled the brakes after a few years. But then came the opportunity to develop the integrated resorts and we went ahead,' she says.

But in the last decade, productivity growth slipped to just 1 per cent.

What caused this slide? Did Singapore lose its focus on productivity?

NTU economist Choy Keen Meng believes policymakers and the people made a mistake in losing sight of the issue during the long boom years.

'When the economy was prospering and wages were rising year after year, policymakers and the public became complacent over time,' he says.

At the same time, productivity gains from information technology diffused into work processes, masking slow improvement in other areas, he adds.

Another key factor, observers note, is the rising flow of foreign workers into Singapore as there was a shortage of local workers ready to fill the new jobs that were rapidly being created as a result of the Government's strategy to achieve growth at all costs.

The labour inflow grew faster than did capital stock, skills or technology - factors which determine productivity gains, or the rise in output per worker.

Labour MP Halimah Yacob says that this focus on growing the economy 'prevented us from delving deeper and asking searching questions much earlier about whether a labour input- based growth model was indeed sustainable'.

The deputy secretary-general of the National Trades Union Congress (NTUC) feels the changing scope of agencies dealing with productivity and competing interests of economic agencies may also have hampered efforts to keep watch on productivity gains.

She noted that in the 1980s, the National Productivity Board was an agency everyone could relate to almost immediately, but this was subsequently changed to the Productivity and Standards Board in 1996, following a merger with the Singapore Institute of Standards and Industrial Research.

In 2002, another name change was effected, to Spring Singapore. 'Spring' stands for standards, productivity and innovation for growth - and the change was to reflect the new focus on innovation-driven development.

'After a while, it became quite confusing as we are not quite sure which agency is really driving productivity growth in Singapore,' says Madam Halimah.

'For example, who is keeping a watching brief on issues like foreign workers and whether the huge influx will have a bearing on productivity? Different agencies may have different needs,' she adds.

'One agency may want more foreign workers for foreign investors while another dealing with small and medium-sized enterprises may also face pressures from their clients.

'But which agency will holistically assess these needs and balance them against the impact on other policies or on our long-term growth strategy?'

Acknowledging such concerns, the ESC this week called for a high-level national council to lead, coordinate and drive efforts to boost productivity and expand continuing education and training.

The council would make sure productivity remains at the forefront of the national agenda and work closely with unions and industry.

Prof Hoon, however, sees the decline in productivity in the last decade, especially in the past five years, as having to do with adjustments Singapore must make as it transits to a more services-based economy.

The hiring of workers in anticipation of the boom in tourist numbers with the opening of the two integrated resorts may also have dampened productivity growth figures, he notes.

In a 2008 paper exploring Singapore's declining productivity growth, Professor Neo Boon Siong and Ms Susan Chung of the Lee Kuan Yew School of Public Policy say overhiring during boom years, the shift towards more knowledge-based work and the lagging effect of technological investment could have contributed to this dip.

The pendulum swings back

THE shift of focus back to productivity gains, Prof Hoon believes, lies in the realisation that as an economy matures technologically, and more new jobs created are to be found in the services sector, it is simply far harder to increase productivity growth.

He points out that the experience of developed economies like Japan and the United States suggests the pace of productivity growth through automation and skills upgrading tends to be higher in manufacturing than in services.

For instance, using robots on the factory floor can expand output per worker in manufacturing considerably but a hairdresser in the services sector can serve only a limited number of customers in a day no matter how skilful she is.

The reality, however, is that ramping up productivity may well be the only way forward for growth.

As Mrs Josephine Teo, who co-chaired the ESC's sub-committee on inclusive growth, puts it: Only productivity growth can create the conditions for sustained and broad-based wage growth.

Mature economies have relied mostly, if not almost exclusively, on productivity increases to grow in the long run.

Some feel Singapore has postponed this transition by importing cheap foreign labour from abroad.

'Now it cannot continue to do this because the physical, social and political limits have been breached,' says Dr Choy, referring to unhappiness over new migrants who are seen as competing with locals for jobs and housing.

How, then, can workers and businesses be more efficient?

Working smarter

THE ESC, in its report, called for a rise in productivity growth to 2 per cent to 3 per cent over the next 10 years.

It also wants improvements in productivity to account for two-thirds of GDP growth, up from the current one-fifth share.

This week, Senior Minister Goh Chok Tong suggested that businesses work on higher-end goods and services that are less dependent on low-end labour.

He noted that this strategy was similar to the high-wage policy in the late 1970s and early 1980s, but this time around, the ESC recommended raising the foreign worker levy to prod businesses into raising productivity.

But Mr Goh cautioned that Singapore should not move too hard on the levy lest a mild recession erupt and companies find themselves unable to cope.

The ESC has called for a national productivity fund to support investments in training and innovation, as well as a resource centre businesses can tap on.

What more can companies do?

The Asia Competitiveness Institute at the Lee Kuan Yew School of Public Policy, in a report last November, said companies have to change the way they do business.

They have to redesign work processes and provide products and services with higher value to customers to tackle the productivity conundrum.

The ESC says Singapore's productivity in manufacturing and services is 55 per cent to 65 per cent of that in the US and Japan. In retail, it is 75 per cent of that in Hong Kong and one-third that of the US. In construction, productivity is half that of the US and one-third that of Japan.

Mrs Teo believes that a more efficient services sector can contribute significantly to overall productivity growth, as the sector accounts for 70 per cent of GDP.

She also sees huge potential for Singapore to learn from countries like Japan, which has high productivity levels in construction with almost no foreign workers, as a result of better work processes.

She thinks a makeover in the sector, and other areas, could draw Singaporeans to jobs they now shun.

But what of the workers themselves - how can they be more efficient, skills upgrading aside?

Many have the misconception that productivity means having to do more tasks but with less pay and longer hours, even though higher productivity means doing more in the same span of time.

Madam Halimah says it is important for companies to engage workers on the matter, as was done two decades ago, and convince them that better productivity will translate to better wages.

'A highly skilled worker who is de-motivated and disengaged will not be a productive worker,' she cautions.

She also feels an industry-by-industry analysis of productivity growth and the issues and obstacles they face will help tailor customised solutions to improve efficiency.

One thing is certain. At the end of the day, the focus on productivity must improve the quality of new jobs - not just any job but jobs that create decent wages and working conditions.

The circumstances have changed, but the core principles remain the same.

To cite the Economic Committee's report of 24 years ago: The country has no other option but to ensure future economic growth is based on high productivity improvements each year.

Insight

Feb 6, 2010

Train, but reward effort as well

Teamy the bee was the mascot of Singapore's productivity drive in the 1980s. Calls have recently been made to ramp up productivity again in Singapore. -- ST FILE PHOTO

WHETHER you are a manager, supervisor or worker, training sessions to boost your productivity could well be on your plate.

Such sessions to show people how they can do more in the same time and with less resources were prevalent at the height of the productivity movement in the 1980s and 1990s.

This week, the Economic Strategies Committee (ESC) recommended such training as a way of enhancing efficiency.

What would this involve?

What is needed, according to Singapore Management University professor Hoon Hian Teck, are a broad-based effort from every level of employment and an innovative culture across the board.

Take the cue from reports on past productivity drives. Almost 30 years ago in 1981, the Committee on Productivity suggested learning how the Japanese system fostered a highly efficient workforce.

A key factor was that workers in large companies felt motivated and inspired to give of their best when there was a free flow of information and extensive consultation at all levels before crucial decisions were taken.

There was, of course, continual training, in addition to a good welfare net - including medical and dental benefits and funding for children's education.

Significantly, there were also prospects for job rotation for employees and an element of a seniority-based wage system to reward loyal workers.

In 1990, the Productivity 2000 report said companies could create opportunities for workers to enhance their personal development.

Employers should also consider various flexible work arrangements - including part-time work and the sharing of jobs.

This week, Straits Times Forum contributor Han Tau Kwang suggested that Singaporeans could develop an instinct for lifelong learning, innovation and professional pride, which he said was lacking.

Training could focus on inspiring workers to take greater pride in their work.

But employers could also take a leaf from a point unionist Cyrille Tan made in 1991 on influencing attitude change.

He said: 'There must be a link between efforts and rewards. Workers want to know what benefits lie ahead if they take part in productivity programmes.'

February 03, 2010

South Africa: Out of the bottle

In 1979, when Standard Bank published Pioneer Bank in a Pioneer Land, the title of the corporate history had a distinctly nostalgic feel. South Africa’s largest bank – then an offshoot of Standard Chartered of the UK – might have spent much of its early days breaking new ground as it followed Cecil Rhodes and other gold diggers around Africa. But by the end of the 1970s it was on the defensive, labouring under economic sanctions and heavily reliant on its domestic market.

It took another decade before F.W. de Klerk told the white parliament, 20 years ago on Tuesday, that its days of domination were over. But with democratic South Africa now more open to the rest of the world, the pioneer label is once again appropriate for Standard, which is increasingly orienting itself to the resource-rich African continent and big emerging markets, in particular the “Brics” – Brazil, Russia, India and China.

The bank’s shift in strategy is just part of a growing trend in South African business. This period of expansion abroad embraces not only mining companies, which have traditionally had a more international focus, but sectors ranging from finance to retailing, telecommunications and consumer goods and services.

“It is an orthodoxy,” says Jacko Maree, Standard’s chief executive, who in the past three years has orchestrated multibillion-dollar deals with Industrial and Commercial Bank of China and Troika, Russia’s second-largest investment bank. “When [South African companies] expand they look at emerging markets.” Standard sold a 20 per cent stake to ICBC in 2007 and acquired one-third of Troika last year.

Bric investment into South Africa is less pronounced than in some other parts of the continent – indeed, $5.5bn (£3.4bn, €4bn) of China’s $7bn investment is accounted for by the Standard deal. But trade connections are strengthening. Last year, China established itself as the country’s biggest trading partner, displacing Germany.

Barred from doing business in most of Africa during the apartheid era, South African companies are meanwhile making up for lost time in their own continent. Links with other emerging markets – themselves interested in Africa’s resources and high-growth consumer markets – are growing quickly. The economic momentum is also giving substance to a foreign policy that since the end of apartheid has favoured links with Asia, Latin America and Africa in an effort to reduce a historical dependence on Europe and the US.

“South Africa is becoming the corporate captain of Africa because it has more pan-African companies than any other country in Africa and this gives it a seat at the table of the Brics,” says Michael Power at Investec Asset Management in Cape Town.

SAB MILLER

Brewer with a recipe that can vary to suit its markets

SAB Miller, the brewer listed in London since 1999, started South Africa’s corporate move into emerging markets and has become something of a role model. Heavily dependent on its domestic market until 1990, the company now derives 80 per cent of its profits from Asia, Latin America, eastern Europe and the rest of Africa, an achievement that has made it the subject of close attention among South African businesspeople.

In part, SAB has been simply been faster than its competitors, buying into China – where it owns Snow, the best-selling local beer brand – as long ago as the mid-1990s. More recently, it expanded into eastern Europe, acquiring Pilsner Urquell of the Czech Republic under the noses of European competitors such as Heineken and Carlsberg. “This really was a coup,” says Rob Forsyth at Investec Asset Management in Cape Town. The Colombia-based Bavaria has meanwhile given it significant exposure in Latin America.

All this means SAB Miller is well embedded in markets that have more growth potential than the US and Europe. Beer consumption in Africa is a fraction of that in other developing markets, with many still preferring the home brews offered in shacks and backroom bars.

There are other elements to the company’s success. It has worked effectively with local partners, sometimes in situations where it does not own a majority stake. Mr Forsyth says that the group is in many ways a “beer consultancy”, prepared to adapt its methods to local conditions. “One of their abilities is to work with people. They are open to different cultures and not too proscriptive.”

SAB Miller has been innovative in its approach to operations. In African markets, for example, the group has built smaller breweries nearer to population centres. That helps cope with potholed roads and weak or non-existent rail links, reducing distribution costs. “Africa requires a different business model,” says Mark Bowman, managing director of the group’s business in the region. Breweries “have to be closer to the market”.

The group has developed a broader range of beers and other drinks for the African market. These include cheaper so-called opaque beers that are sold in paper containers, have a limited shelf life and are aimed at the home brew customer. It has begun schemes to source ingredients from local farmers in order to make pricing more competitive, especially among low-income groups.

A beer made from local sorghum has been a big success in Uganda. This year, SAB Miller plans to start producing beer in Angola made partly from cassava.

Growing connections with emerging markets in part reflect the long-term shift of an economy that remains heavily dependent on whoever is demanding its raw materials exports – and the way in which the global crisis has hobbled Europe and the US, while the east and south have been less affected. Mineral and raw material exporters have seen rising Chinese demand for their products help compensate for the slide elsewhere.

Coal and iron ore exporters – often part of big international groups such as Anglo American – have been particular beneficiaries. So have platinum miners. In 2008, about two-thirds of the platinum dug out of the ground was used to make catalytic converters, a component that makes vehicle exhaust emissions cleaner. Last year, the motor industry downturn led to a sharp fall in sales – but platinum producers were able to sell huge quantities of the metal to jewellery producers in China, where demand for the so-called white gold is strong.

In addition, though, companies in other sectors have been stepping up their expansion. Standard itself has been busy expanding in Africa, recently obtaining a licence in Angola. These arrangements have enhanced its capacity to negotiate project finance, mining deals and trade facilities, often – as in the case of a power station being built by the Chinese in Botswana – with a partner from one of the Brics.

For financial services groups, exchange controls and tight regulation meant the sector has emerged little scathed from the crisis and well placed to move forward. Last June, for example, FirstRand announced it would refocus activities on Africa and the region’s growing trade and investment links with India and China, agreeing a month later a strategic alliance with China Construction Bank. Like ICBC, CCB ranks among the big four Chinese banks.

The trend is also visible among consumer companies. SAB Miller, the brewer, invested in China as long ago as 1994 and is now stepping up its drive into Africa. MTN, the telecommunications group that has sought and failed in the past few years to merge with India’s Bharti Airtel (on two occasions) and Reliance (on one), has nonetheless made headway expanding in Africa and in the Middle East. It commands an average 38 per cent share of 10 markets ranging from Nigeria and Ivory Coast to Afghanistan and Syria, has more than 100m subscribers and generates 60 per cent of its revenues outside South Africa.

Even companies that were formerly bastions of apartheid have been joining the throng. Naspers, a publishing group of Afrikaner origins, has been picking up media, communications and especially internet businesses in Brazil, China, Russia and other high-growth markets – last September buying Brazil’s BuscaPé, a profitable electronic commerce company, for $342m. Naspers also owns a stake in Tencent, a big Chinese internet portal.

Sasol, which under white rule developed technology to convert coal into oil to mitigate the impact of the international block on sales of crude to South Africa, has struck agreements within the past two years to develop plants in countries including China, India, Uzbekistan and Indonesia.

South African companies have been able to take advantage of these trends for several reasons. Perhaps most important is the country’s business culture. South African managers are seen as less risk-averse than their counterparts in Europe and the US. The country’s ethnic diversity and tumultuous recent history means they also tend to be open to different cultures and less dogmatic about business methods. Companies have become adept at working with local partners, influencing the course of a venture even though they might not have total control.

The very isolation of the apartheid era forced business to be creative, but post-apartheid trends have helped, too. Black economic empowerment, a policy introduced in the 1990s under which an elite of black managers was created and billions of dollars of corporate equity transferred to black business, has made South African companies more acceptable in Africa and other emerging markets. Companies have meanwhile acquired experience in selling their products to South Africa’s own emerging black middle class and low-income groups, arming them to operate in similar markets further afield. “South African business isn’t as afraid of Africa as its competitors. They know what does and does not work and I think proximity helps as well,” says Mr Power.

Size is another factor. With a population of less than 50m, South Africa’s domestic market is far smaller than the giant emerging economies, forcing companies to be flexible rather than focus on volume. Yet local capital markets are relatively large compared with economic output, allowing companies to get hold of funds more easily than some of their developing country competitors. Capitalisation of the Johannesburg stock market is roughly twice gross domestic product, whereas in many countries the value of listed companies is smaller than the yearly output of the overall economy.

The country also has sophisticated debt markets on which companies can raise long-term funds. “South Africa has by far the most sophisticated capital market compared to [other developing economies]. You had an ability to fund yourself that was disproportionate to the size of the home base,” says Standard’s Mr Maree.

On top of all that, companies have been urged by their government to do business in emerging markets. Since the mid-1990s the governing African National Congress has wanted to promote a southern axis, linking the big emerging nations and Africa. In part, that is to keep US political domination in check by strengthening multilateral institutions.

Seven years ago, South Africa joined Brazil and India to form the G3, also known as Ibsa. Although its economy is by far the smallest of the three, the country’s influence within Africa gives South Africa disproportionate weight, making it an attractive partner for the Brics when they seek to exercise diplomatic muscle. That influence was visible late last year in Copenhagen when South Africa – alongside Brazil, India and China – took an active role in climate change negotiations, giving birth to the so-called Basic group.

It will take time for these connections to develop. The government is wary of a high degree of dependence on any country and insists national interests have to be taken into account, with leaders warning about the dangers of a new colonial relationship. Indeed, the government imposed temporary quotas on Chinese textile imports in 2007 and 2008. In the eventually unsuccessful negotiations about merging MTN and Bharti Airtel, South Africa jealously defended the idea that the new entity should be listed in Johannesburg as well as Mumbai, in spite of the greater scale of the Indian undertaking.

No longer is it likely that globalising South African companies will be allowed to list their shares and move their headquarters abroad, as groups including Anglo American and SAB did in the late 1990s by relocating to London. But even so, say analysts, the country’s corporate sector offers investors keen on the potential of the Brics a different way to access those markets. Because South African companies tend to be more transparent and better governed than many of their emerging market counterparts, it could also be a safer way to benefit.

Ayanda Ntsaluba, director general at the foreign ministry in Pretoria, says the government regularly holds discussions with companies such as Standard and MTN, and lends particular backing to co-operation between these businesses and Chinese, Indian or Brazilian counterparts. “We are encouraging more South African companies to establish themselves in the emerging world,” he adds.

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Malcolm Gladwell’s business blindspot

If you want to understand and write about entrepreneurs, then there is no substitute for working with them. I have spent more than 25 years partnering entrepreneurs, and indeed practising as one, and the past nine years writing about them every week for national newspapers. Unfortunately, best-selling author Malcolm Gladwell has not – and it shows.

A recent issue of The New Yorker magazine includes an essay entitled “The sure thing: How entrepreneurs really succeed”. This is a classic Mr Gladwell piece, suggesting that our preconception of business legends as risk-takers is wrong. He asserts that “successful entrepreneurs are seen as bold gamblers; in reality they’re highly risk-averse”. His speciality is a counter-intuitive revelation about human behaviour that demonstrates that our preconceived ideas are wrong. If this article is anything to go by, I think his journalism is shoddy.

The only sources he cites are biographies of tycoons such as Ted Turner and John Paulson, a slim book I wrote about a while ago called The Illusions of Entrepreneurship and similarly derivative material. Seemingly this grand new concept about how riches are accumulated is not founded on original interviews with entrepreneurs, or indeed direct experience with them. Therefore, at best, Mr Gladwell’s theory could be described as a hunch based on a few carefully selected examples, rather than a representative study.

I have participated in dozens, and observed in detail hundreds, of business moves by entrepreneurs. These include takeovers, product launches, start-ups and disposals. In hindsight the really profitable ones all appear one-way gambles and risk-free. But at the time, generally speaking, they were neither.

The launch of BSkyB, perhaps the most lucrative media project of our time, was fraught with danger and almost bankrupted News Corp. Similarly, the launches of the iPod and iPhone by Apple were both high-risk strategies and might have flopped.

We remember the winners but forget the hundreds of losers – they all appeared to be “sure things” at the time. That is why venture capital investing is hard to do well. Genuine innovation is a perilous game.

But I have another, perhaps more serious dispute, with the article’s assertion that “entrepreneurs only back sure things”. Much of the piece is given over to a discussion of Mr Paulson, the massively successful hedge fund manager who in essence shorted US housing mortgages. He is seen as the archetypal entrepreneur who bets big only when he knows he cannot lose. But Mr Paulson is not an entrepreneur: he is a Wall Street financier who takes short-term speculations, mainly, it seems, using derivatives – gambling with paper on paper.

Entrepreneurs, on the other hand, build real companies that employ people and generate value for an economy. They do not amass riches through the misery of others; they create wealth and jobs, and make the capitalist system work.

This is not simply a matter of semantics. It is a moral and philosophical issue. To me, Mr Paulson and others like him are the opposite of heroic – they are in essence parasitical. And his story should never serve as a case study in how to become a billionaire. The idea that he could be a model for anyone wanting to find a sure thing is odious. It is asserted that his fund made $20bn punting that the value of subprime mortgages would fall. He has become very rich thanks to a housing disaster and the near collapse of the US financial system. Millions of homes are likely to be foreclosed, and the US taxpayer was obliged to invest billions in near-bankrupt businesses such as AIG. Mr Paulson did not cause this mess, but characters like him are a catastrophic advert for capitalism. He may be rich, but is what he does to enrich himself productive in the slightest degree?

By highlighting such figures, Mr Gladwell is naively trumpeting bad capitalism and doing a disservice to real entrepreneurs. He reminds me of the “useful idiot”, the sort of sympathiser who acted as a cheerleader for Soviet communism, while the system was oppressing and imprisoning its citizens.

Lunch with the FT: Madam Fu Ying

The elegant 57-year-old gliding towards our table does not fit the stern face of Chinese officialdom. She is wearing a pink checked jacket and skirt; pink and white pearls; and a sunny smile. As other luncheon guests at the Goring Hotel, one of the last family-owned hotels in London, look on, we pose for a photograph. With one enthusiastic eye on posterity, the other on future career prospects, an ambassadorial aide takes two pictures before China’s outgoing ambassador to the UK dismisses him with a mildly embarrassed wave.

Madam Fu Ying is a rare specimen in the ranks of Chinese diplomacy. She is female, she comes from an ethnic minority – she was born in Inner Mongolia – and this week, she takes up a new post in Beijing as only the second female vice-foreign minister since the founding of the People’s Republic in 1949. (The first was Wang Hairong, Chairman Mao’s niece, who was appointed during the Cultural Revolution.)

We settled on the Goring Hotel, near Victoria, as the location for our lunch after delicate negotiations. The biscuit-brown and cream decor is classic and understated; the menu unequivocally English. The ambassador is delighted. Though she describes the past three years in London as her toughest diplomatic assignment, far more demanding than earlier stints in Australia, Indonesia and the Philippines, she will, she says, miss much: the jogs in the park, the walks down Oxford Street, the West End theatre, the football ...

The football? “Yes, very much,” says the ambassador. “A friend of mine introduced me to Arsenal. He was so keen that I started to support Arsenal. I even have an Arsenal T-shirt, with a number 08.”

EDITOR’S CHOICE

As a Spurs supporter, I am underwhelmed but the soft-spoken ambassador presses on regardless. “Last November, Arsenal were playing Chelsea and it was a Sunday. Very cold. I have a blue down coat and I matched it with light blue jeans and a royal blue scarf. Very beautiful. But when I arrived in the stadium I already knew I had made a mistake. It was very awkward cheering for Arsenal [whose shirts are bright red] in bright blue.”

Madam Fu is charming but she also knows that charm can serve as a weapon. As when she was questioned at a 2008 trade conference about the possibility of a British trade boycott because of China’s crackdown in Tibet. Such threats, she replied, could have embarrassing consequences since most of the attendees were wearing clothes made in China: “You’ll all be naked.”

The ambassador claims to have forgotten the incident, and turns to the menu. She selects soused herrings, admitting she has no idea what “soused” means but she is determined to order something authentically British. The waiter recites a word-perfect explanation. Satisfied, she moves on to steamed Cornish sea bass as a main course. I, too, choose sea bass, with a pear and beetroot salad as a starter. The ambassador declines a glass of wine. “Need to stay alert,” she says, conscious perhaps that her superiors in Beijing will study this interview as keenly as any diplomatic dispatch.

Highlights of her three years in London include, says the ambassador, lots of visits to advanced manufacturing sites; trips to the homes of Jane Austen, the Brontë sisters and William Shakespeare; and, less predictably, the British TV talent show The X Factor.

The trickiest point in her tenure came in 2008 with the unrest in Tibet ahead of the Beijing Olympics. A flash of irritation appears on her face as she recalls international pressure for an official boycott of the opening ceremony in Beijing. The very idea of China being “humiliated” – “the last word you would use on China now” – was insulting, not least because it impugns China’s status. She prefers to draw attention to the wave of sympathy for the Chinese people expressed by the British after the devastating earthquake in Sichuan in May 2008. In one month, she notes, the embassy received £2m, including donations from a delegation of 13 policemen who bicycled from Birmingham to London to drop off the cash.

Madam Fu’s command of English is excellent, thanks not only to her background as an interpreter but also to her postgraduate studies at the University of Kent in 1985-86, when she shared a scholarship with another Chinese student. She remembers having to live on £1 a day, after payment of the rent. But however hard life may have been in Canterbury during the Thatcher years, it was nowhere near as tough as her childhood.

Fu Ying was born in 1953 in Hohhot, the capital of Inner Mongolia, an “autonomous region” of China. Her parents were bilingual, speaking Mandarin and Mongolian. Her father wrote poetry. She can, she tells me, still remember the day that a tall, ethnically Chinese man arrived at the family home to take her father away. It was 1967 and the height of the Cultural Revolution, the bloody chaos unleashed by Mao to purge the party and consolidate power.

“The [tall] man looked into my eyes and said, ‘Democracy is great. Do you know what is democracy?’ I shook my head; I didn’t know. And he said, ‘That’s the change of history. You will be swept away by the change of history.’” (Democracy, during the Cultural Revolution, was equivalent to anarchy. No wonder, I muse to myself, it does not carry the same positive connotations in China as in the west.)

A tear appears in Madam Fu’s eye. She recounts how school was shut down and she was taken away, aged 17, to a remote town in the mountains, Wulashan, five hours distant by train. There she worked in the fields – “very, very physical, really stressful and extreme for a young girl” – before helping to build a new factory where she was employed as an announcer, broadcasting information to her co-workers about the weather and the like through a loudspeaker.

But then, in 1973, she had her first break. The Cultural Revolution was in its last throes and previously frowned-upon practices such as examinations to test pupil ability were revived. Fu Ying excelled, having squirrelled away first Russian and then French classics from a library in Wulashan. She also excelled in English, having picked up the basics on Chinese radio. She gained a place to study for four years at Beijing Foreign Studies University.

After the death of Chairman Mao in 1976, China started to open to the rest of the world. Suddenly, interpreters were in heavy demand. Madam Fu joined the elite translation department of the diplomatic service. When I ask her if it is correct that she was a protégée of Mao’s favourite interpreter, she will not confirm it – though she certainly made enough of a mark to be elevated to be interpreter to Deng Xiaoping, Mao’s successor and the man widely credited for introducing market reforms in China.

While the ambassador declines to reveal much about life with Deng, she does confirm a memorable public mistranslation. In January 1988, when the 84-year-old Chinese leader greeted Gro Harlem Brundtland, the then 48-year-old Norwegian premier, on an official visit to China, he observed that she was not so old. Brundtland said that Deng did not look so old either. Deng laughed and said he was only 84 but, explains Fu Ying, “I was in a hurry and said he was 48 ... Deng laughed. But Deng was great. Interpreting for him was really a very exciting experience.”

I ask the ambassador if she was the translator when Deng reportedly declared that he was very pleased with the one-child policy in China because he no longer needed to invade Siberia. “He never said that,” says Madam Fu, showing a momentary sense of humour failure. “He was a very kind man, very alert about the world. I liked Deng; he was very simple, very quick.”

The waiter arrives with our steamed sea bass wrapped in baby spinach. We agree that the fish tastes as good as it looks before I turn to the vexing question of China’s relationship with the rest of the world. How should the west accommodate Chinese power, and why does the scope for mutual misunderstanding seem greater than ever? Madam Fu weighs her answers carefully. “You have your standard [in the west] and you use that standard to measure China, and every time you find China does not fit that standard. But China is never going to, is it? China has such a long history of its own, the only continuous culture in 5,000 years. But it also has about 200 years of a very sad history, with foreign occupations. That hurt China. That’s why the Chinese remember the suffering more than the victories. China has a strong sense of crisis.”

Beyond what I take to be the implied reference to the brutal Japanese invasion of Manchuria in 1931 lies a gut Chinese hostility to being lectured by anyone, whether on human rights, an artificially undervalued currency, the environment or the scramble for raw materials in Africa needed to power the Chinese economy. “There is this frustration about not being understood, not being accepted,” says Madam Fu, who compares different political systems to different types of roof which cannot be imposed willy-nilly on different types of buildings.

The metaphor is seductive but what about universal values, such as freedom of expression, or, more concretely, the controversy over Google, which has just threatened to pull out of China on the grounds that the giant internet group was being both censored and targeted by cyber-hackers? The ambassador seems slightly flustered. “I don’t know the inside story. I don’t know exactly what happened ... I don’t think it’s a clear picture.”

But she soon recovers her poise, noting pointedly that Google apologised last year to Beijing for allowing offensive material on its site (even though the pressure from Beijing that elicited this apology was widely seen in the west as a pretext for renewing state censorship).

As for cyber-attacks, “That is a problem in China and all over the world, so you probably know which country has the best hackers.” The real answer to my Google question comes a few minutes later, and it centres on the Communist party’s determination to maintain its monopoly on information flows and propaganda. As so often with even the most sophisticated Chinese officials, the essence of the argument lies in two words: “political stability”.

“China is in the middle of reform. On the one hand [there is] the importance of maintaining political stability, which is the essential condition for China to grow – and on the other hand, the changing horizon for the government ... I think China is gradually finding the right path and finding the right balance between maintaining political stability while making change, which is one of the most difficult challenges for a government in a developing country. And China is”, she adds, “still a developing country.”

But China is also the coming global power. Does China wish to replace the US as the world’s hegemon? “Deng Xiaoping said China will never be a hegemon. If one day, China becomes one, the world will stand up against China. That is very deep in our hearts. Every diplomat knows that.

“The west should calm down and learn to see China for what it is, not keep speculating and putting their own colour into this painting,” explains Madam Fu, who has a collection of modern Chinese and Mongolian art. “A Chinese painting is watercolour: fresh, very light. If you pour oil on it, you don’t see the painting any more.”

The waiter arrives with Madam Fu’s roly-poly pudding. To show solidarity, I break my informal rule and order a dessert (a poached pear with stem-ginger ice-cream). We have a coffee and tea respectively, and I ask about her next post in Beijing. She treads carefully, noting only that her husband, an anthropologist at the Academy of Social Sciences in Beijing, is, as we speak, en route to London to help with the packing. As I prepare to pay the bill, Fu Ying opens her bag and presents me with a small gift: three tiny, out-of-circulation food coupons from Inner Mongolia, once preserved by her mother. The gift at the end of a meal conforms to Chinese etiquette but it also displays a personal and diplomatic touch (she donated a similar gift last October to the British Museum to mark the 60th anniversary of the People’s Republic).

Earlier Fu Ying had referred to Britain’s strong sense of justice. Now she says she feels a sense of personal accomplishment as well as a sense of history and her own modest place in it. “I think I will be leaving with a few full-stops, but lots of commas. I opened things, but I haven’t accomplished much, but the passage is open. And there are still a few question-marks which will be answered in future.”

Madam Fu’s language is deliberately opaque. For two-and-a-half hours I have listened to a consummate professional; charming, steely, wary. We started to scratch the surface but there is more to come: how about a rematch in Beijing?

It is possible that other Chinese ambassadors to the UK have written personal letters to the editor of The Sun, but it is almost certainly the case that Fu Ying is the first to do so in defence of talent shows.

“I have to admit that I also enjoy watching The X Factor when there is time and have my favourite contestants,” she wrote in November, following a minor media kerfuffle about noise at her residence from a next-door building that housed the show’s stars. She was coy about who she was rooting for but said many of the wannabe singers had “great qualities”.

For much of the past decade, China has been on a charm offensive, settling border disputes with neighbours, becoming an active player in a host of international organisations and distributing aid in the developing world. The overriding goal has been to play down the idea of a looming “China threat”.

That also means a different style of diplomacy, of which Madam Fu has been one of the most prominent examples. To audiences used to remote, cliché-spouting cadres, her quick wit has been disarming. By writing regular opinion pieces in British newspapers, she has tried to convey the image of a country that is willing to engage in argument and not hide behind defensive slogans.

That has also made her a controversial figure at home. Although China has been working to soften its image, officials overseas face a risk of being denounced for showing weakness in the face of foreign pressure. During the furore over the 2008 riots in Tibet and the Olympic torch relay in London, she came under fire in China for being soft after she wrote an article for The Sunday Telegraph.

Such sniping does not seem to have held her back, given her recent promotion as one of three new vice foreign ministers. Yet she is also returning to Beijing at a time when the mood appears to be shifting and China is not so keen to present a suave demeanour to the world.

There were the bruising talks in Copenhagen over climate change, and the recent threat by Google to leave China after alleged bullying by Beijing and high-tech hacking.

One of Madam Fu’s last acts in London was being summoned by Foreign Office minister Ivan Lewis after the execution of British citizen Akmail Shaikh for smuggling heroin. Beijing responded by highlighting Britain’s role in the 19th-century opium wars. No one seemed to be making jokes about The X-Factor.

Geoff Dyer is the FT’s Beijing bureau chief

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